Three Questions To Ask In an Uncertain Business Climate

Imagine you run a global business, but you have no idea if one of your largest markets — say China or Mexico — might shut down due to a trade war. Or watching your once-powerful brand suddenly become the target of a boycott, simply because you allow Muslim employees to wear hijabs at the office. With Donald Trump in the Oval Office, once-implausible scenarios like these have become real possibilities.

For many people, a Trump presidency was the first surprise. It soon became clear that no one actually knew how his term in office would play out — not even Trump himself. As Trump proposes an array of initiatives ranging from healthcare repeal to tariffs on our second-largest trading partner, the long-term agenda has become even more opaque and uncertain. In the face of such confusion and impulsivity, many people and organizations have had tremendous difficulty planning their own strategies and actions for 2017 and beyond.

The Trump administration has the ability to make changes that could potentially impact the legal circumstances, economic security, and personal safety of millions of citizens. As a strategist working across a number of commercial and nonprofit sectors, it’s clear to me that the business community is operating with an unprecedented degree of uncertainty.

Many of the basic assumptions business leaders have long held about how markets work — global competition, businesses as politically-neutral entities, well-signaled regulation — are suddenly being challenged. As such, every organization should be thinking about three critical questions:

1. Deregulation: How broad and deep?

Changes to the U.S. regulatory regime will fundamentally alter competitive advantage. For example, with the potential appointment of an anti-EPA lobbyist as head of that very same agency, we are likely to see far laxer enforcement of existing environmental protections, and possibly the repeal of some. If that is indeed the case, the service life of legacy infrastructure becomes automatically extended. Companies which invested in upgrades or new facilities to get ahead of ever-tightening regulations might find themselves facing higher operating costs than competitors who held out (or were in violation previously). In other words, the timeline for investment payback in cleaner infrastructure will suddenly have shifted.

Another, more glaring example, is health care. Because of a regulatory shift to outcome-based payments under the Obama administration, we have seen massive consolidation in the sector — often led by large hospital groups — under the assumption that managing a person’s (and population’s) health from start to finish is a better strategy than fee for service approaches. If the ongoing march to outcome-based pay is slowed or repealed, this could incentivize a renewed push toward unnecessary services, so as to more fully utilize the broader network. Others have pointed out that existing calibrations will need to be adjusted about basic demand assumptions if the number of insured Americans goes down; this could mean complications for drug and device manufacturers already making capacity investments, or insurers finalizing the number and types of plans they will be offering on exchanges. Insurers have also shifted their collective focus in other ways, building new capabilities in consumer marketing and dipping a toe directly into the provider waters themselves, relying less on actuarial advantage to find the right risk pools. However, a repeal of the ACA could flip the insurance industry back to its more traditional ways of turning a profit.

In both of these cases, not only is it the idea of change that creates uncertainty, but also the timing and extent of those changes. Acting quickly and decisively could create a first-mover advantage. On the other hand, it could divert investment too soon. Yet, waiting to see how things pan out can be a never-ending story — as the actual form of change may take a while to define itself — and put a company behind its competitors. A balanced, flexible portfolio, combined with regular contingency planning is a must.

2. The Politics of Consumption and Sustainability: What’s the basis of consumer choice and who is still my potential customer?

It seems clear this administration wants to repeal past environmental safeguards and commitments, threatening a trend in corporate America toward sustainable business. But there may be enough customer momentum, and therefore a large enough market, for companies that are established leaders in these segments (Walmart, Unilever come to mind) to continue operating in an environmentally-conscious manner.

This then raises another question, related to consumer behavior, brand equity and company reputation: to what extent will the “politics of consumption” become an even greater influence on what people buy, and from which companies? Will being associated with a particular political movement become a normalized purchase criteria? We have already seen the rise of purpose-defined brands—will everyone now have to declare what type of world or society they want in order to attract (and retain) customers?

Last year’s hubbub around the latest Star Wars movie is one early sign of this playing out. Or the “Boycott Target” movement that emerged to protest the company’s support of LGBT rights. Both L.L. Bean and Uber have recently become embroiled in controversy after executives established direct links to the new president. Even a fashion designer’s decision to dress the new First Lady (or not) is now a brand position that companies are being forced to take. Certain brands are already built around political causes like sustainability. But companies may find themselves facing an even starker choice in Trump’s America, being forced to publicly pick sides over issues that were once overlooked. Are the days of earning a neutral buck over?

3. Globalization: Will the scale game end?

Finally, globalization, one of the key drivers of company strategy over the last two decades may be eroding. Globalization has driven a major shift toward economic scale. The ability to serve multiple markets from a large manufacturing base, or amortize the investments in brand awareness and equity over multiple markets, has been a key feature of the modern global corporation. It’s fueled the growth of tech behemoths including Google and Facebook, via large data centers and huge network effects. However, with economic nationalism continuing to influence trade policy, this scale advantage may have hit its peak. This trend may be much in the news recently, but the reversal of globalization has been at work since 2008, as trade barriers have increased significantly. Global trade has slowed enough to be labeled “stagnant,” and there has been a move towards more bilateral and regional economic agreements versus global/multilateral ones.

There are real questions about the extent to which the Trump administration will accelerate this trend — either by making the first move or responding to others on an ad hoc basis. For instance, it will be interesting to see how Trump handles recent moves by China to essentially intimidate U.S. tech companies operating within its borders. Perhaps there won’t be any response at all. Or maybe the Trump White House will fight for specific industry exceptions. Of course, it’s always possible that Trump and his advisers will eventually recognize that many of the US’s most successful companies are dependent on the business model of global scale to be profitable. After all, his company certainly is.

Prepare for multiple scenarios

Assuming they are able to avoid direct attack from the incoming POTUS (hello, Boeing, Lockheed, BMW), businesses will still have a hard time planning with any confidence for the next four years, at both the strategic and operational levels. There is great uncertainty around the core rules of the game in each and every market, including — but in no way limited to — the three questions discussed above. It will be important for companies to take a more dynamic strategic view and realign today’s assumptions for tomorrow. Mapping a variety of scenarios should be a required starting point, even if just to put contingent ideas into the mindset of leadership. Ultimately, agreeing on and building the right level of flexibility to address the amount of risk an organization is willing to take — and the near term investment it is willing to give up to do so — is the harder, but absolutely essential, next step. Companies that take a wait-and-see approach are merely setting themselves up for future strategic surprises. And surprises, as we are now aware, are particular specialty of Donald Trump’s.

The above uncertainties may just be the tip of the iceberg in terms of the volatility we will see across industries. For more information about scenario planning, please visit me at www.ranenconsulting.com.